This guide will briefly explore strategy, tax planning, financing, marketing and the legal aspects of being a landlord. It’s intended as a broad overview of a range of topics but for more in depth detail, please call for a more in depth conversation.
A Key thing to consider is your strategy behind embarking or furthering your developments as a landlord and then position yourself accordingly.
As a landlord, are you looking to grow a portfolio with an attractive yield as a permanent income, creating a retirement tool, after capital preservation, or are you an accidental landlord, having moved for work or into partner’s property or forced because you can’t sell?
Each different category needs consideration as to planning the portfolio, the sort of tenants you’ll target and the associated financial planning around mortgages and limited companies.
Using a well-informed, independent letting agency with good connections or experience in financial planning and landlord strategy will help you understand and develop your goals. If using an agency, try to understand what hey will add in terms of value in these crucial areas.
Some may be moving in with a new partner and need the safety net of not selling their home, or they may be relocating to a new area with work and are unsure as to whether the move will be permanent. These are very sensible reasons for keeping the Property and becoming what we may call an ‘accidental landlord’.
The key here is to ensure a supportive agency that will guide you through the laws and secure a good quality Tenant for you.
You should also consider, that you may decide to sell, if all goes well, so try and make sure that you have the full range of professional marketing options from the outset as your Tenant may not be as motivated to show case a house for photos and virtual tours as you are and this will come across in the marketing materials to your detriment.
If you are looking for a higher yield, then you should be looking at 1- or 2-bedroom properties.
They may well turnover more frequently, but the return will be greater.
Consider using an agent that will source Property for you as well as one that does not inflate the costs of maintenance. You may be surprised to hear that it is common practice to hide admin fees in maintenance costs.
You may be even more surprised to hear that some agencies also target staff members on how much money they can generate, which can lead to unnecessary expensive works being instructed so make sure you’re not losing income by asking what hidden extras and add ons are charged to the landlord.
Retirement Planning / Capital Preservation
A strategy here may be to consider more family friendly type properties where occupants are likely to stay longer, thus reducing void periods, when the income is crucial. These Tenants are more likely to look after your property and treat it as their own home.
Personally, I am a fan of solid rental returns as looking for areas of growth can lead to making less sensible purchases. However, what is the market telling you? Is there an area of under performance that could be attractive with an improvement in conditions? As I write, apartments fall into this category.
New Tax Rules
Previously private and individual Landlords could claim tax relief on mortgage interest payments and fees, as well as fees incurred on loan to buy furnishings.
In 2015 the government confirmed that this would be phased out and introduced several new measures. From 2017 – 2018 the process began with claimable tax relief reduced to 75% and the reduction continued through to 2019 – 2020.
In 2020 – 2021 Landlords will not be able to claim any tax relief on mortgage interest payments at all. Instead from April 2020 Landlords will receive a 20% tax credit on their interest payments which could be bad news for anyone in the higher tax bracket.
Stamp duty also adds 3% to the purchase price and so a purchase needs more consideration than ever before.
Which is the most tax efficient way to set up? Again, this depends on your strategy. Setting up in your own personal names provides capital gains allowances and Principle Primary Relief if it has previously been your home.
A limited company can help to reduce tax liability on income as the initial deposit can be a director’s loan into the business, thus potentially allowing several years of rents without income tax. Perfect for higher rate tax payers looking to eventually reduce their employed income or close to retirement.
However, setting up a partnership can allow you to set up in your personal names and change it to a LTD company at an opportune time without a further stamp duty consideration.
Getting it right from the start can save you thousands so speak to an accountant from the outset.
The cost of financing can rapidly eat into, or increase, your returns. Whilst personal buy to let rates are cheaper than Limited Company rates, limited company rates are getting more and more competitive. Once you consider the tax advantages of setting up as a limited company, then it means you have a lot more to consider than just the headline interest rate.
Speak to a mortgage adviser for more information, and ideally one that has tax planning or retirement planning experience.
Getting this right can lead to a higher return. So how will you or your agent advertise your property? Do you know the difference in rental price that a professional presentation makes? The use of professional photos, virtual tours and marketing videos can attract tenants and the more competition you have, the better your letting price. I still see so many rental properties without even a basic floorplan- consider yourself as a potential tenant, would you waste time calling about a property that you can’t visualise? So research your intended agents adverts.
Whether you are an existing Landlord or first time Landlord, you need to be aware of recent changes impacting Landlords.
There are several laws and regulations that need to be followed to legally let a Property in England and Wales.
As a Landlord you need to be aware of current legislation and stay up to date with regular changes and amendments. A good letting agent can take care of this for you.
First is the Deregulation Act 2015 which applies to all tenancies from 1st October 2018.
This includes serving of the How to Rent Guide, Deposit protection & guidelines, gas safety issuing, changes to Section 21 notices and Retaliatory Eviction.
What many Landlords might not realise is that, from October 2018 the provisions outlined in the Act will apply to all Tenancies, not just new or renewed Tenancies, and if you don’t follow the processes, you may find it difficult to evict a tenant.
Our recommendation to any Landlord or investor reading this guide, is to familiarise yourself with the regulations, (and any recent changes) and take further professional advice where needed to safeguard the profitability of your investments and keep on the correct side of the law.
Getting it wrong to save a few pounds can have major implications. If a Landlord has not complied with all the relevant and important steps at the start of the tenancy, they may find themselves in a vulnerable position should anything go wrong. For example, Landlords will not be able to evict tenants in the unlikely event that they need to; it takes 6-8 months on average to regain possession of a property from the Court and can be a very complicated process.
If you are not confident with the on-going changes and do not want to risk ten or thousands of pounds in fines and potential prison sentences, then we recommend you use an ARLA Propertymark Protection agent, like At Home Estates, who will guide you through the process and ensure that there are not any mistakes made.
Letting your property is a big decision, both for you and the tenants that will be living tin the property and it is very important to understand and appreciate what this business relationship entails.
For more help and advice, contact:
At Home Estate and Lettings Agency
6 The Parade